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Smart Answers November 20, 2009, 9:59AM EST

After You Lose "Floorplan" Funding

First determine why your bank closed your existing credit line. Then look for one that participates in the SBA's loan guarantee program

By Karen E. Klein

I'm trying to secure floor funding to finance inventory for a boat sales business. Our bank closed down our funding, and I wonder how to find another company that might still be lending? We're still qualified for financing, but we've had no luck finding a lender. -P.T., Seattle

"Floor funding," or "floorplan funding," is a working capital line of credit typically used by automobile, boat, and recreational-vehicle dealers to finance their costly inventory. Dealers depend on floorplan funding to stock their lots and showrooms. Traditionally, vehicle manufacturers offered floor funding to facilitate retail sales of their products, but banks also got involved over the years, especially financing auto dealers, says Robert C. Seiwert, senior vice-president at the American Bankers Assn.'s Center for Commercial Lending & Business Banking.

Recently, manufacturers pulled back on funding because their own financial troubles and bank credit became increasingly difficult to secure, especially for discretionary items. "Financing of any type continues to be a difficult goal overall," says William R. Osgood, founder of The Global Resource Network for Small Business.

Because of an increasing number of loan defaults on cars, boats, and RVs, banks see this sector as extremely risky, Seiwert says, and many have cut the terms or the amount of credit they provide to dealers. "They may have cut down their portfolio entirely or winnowed out the weaker players in their marketplace," he says.

SBA Program

Try to determine why your credit line was closed. Ask your previous lender whether your business was deemed a bad risk or whether they simply reduced their floor funding overall-and your firm was a casualty. "If it turns out that the cancellation was not your fault and you have a viable business with a successful track record, you should have a chance to get floorplan financing from other lenders," Seiwert says.

Look for a bank that routinely does floorplan funding in your industry and also participates in the U.S. Small Business Administration's loan guarantee program. These banks may be difficult to find, but don't give up, Seiwert urges. "There are 8,300 banks in this country, and you may have to look further afield to find this specialized financing, but if you're diligent in asking the right questions, you'll find a place to present your case positively," he says.

Contact the Vendor

The 2009 American Recovery & Reinvestment Act established a pilot program for SBA-backed floorplan financing under the existing 7(a) loan program. Under this program, which runs at least through next September, you may be eligible to borrow from $500,000 to $2 million, with a 75% government guarantee and a fee waiver.

If you're selling high-end watercraft, that upper limit may not be adequate. But "even if it's not exactly the amount you hoped for, this program may be a bridge for you until the economy turns around more," Seiwert says. The House of Representatives recently passed legislation that would increase the amount available under this program.

Other possibilities Osgood recommends: Reach out to each manufacturer you partner with to see if they will help you get their units in your showroom; connect with your state's Economic Development Dept., particularly if the funding will allow you to retain employees; and contact your state and federal political representatives to see if they can suggest resources.Additional links to small business funding sources are listed at BUZGate.

Once you find a potential lender, think like a banker, Seiwert suggests: "Demonstrate to your banker that you understand the risks and come up with two or three ways you can repay their loans." Jim Lynch, president and CEO of Illinois-based Leaders Bank, says you should approach any lender with a well-conceived business plan, several references, and good marketing information. Also "make sure your business has a good accountant and good accounting systems," he says.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

Originally published at

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